Political Resolution: Lebanon Gold Reserves Invoked

The U.S. announced plans to sanction well-known Lebanese Christian politician Gibran Bassil. Bassil, who is the son-in-law of President Michel Aoun, is also a prime candidate for presidential elections in the next two years — although the penalties likely significantly impede his chances to hold up the position.

Bassil is the head of the Free Patriotic Movement, which was funded by then-president Donald Trump. There is more than one scenario to consider, the most prominent of which leads to a standstill. Its conduct may lead to the spending of the remaining reserves of dollars and the loss of control over gold. The level of uncertainty is high, although there are some public assurances that they tried to make in the case of U.S. charges levied on Bassil. It’s unclear what decision the team has taken to face a new phase in consultation with its allies, particularly the powerful Shia movement Hezbollah.

The worst-case scenario subjects them to face penalties, as an irreplaceable de facto. Thus, this gives rise to two options: a confrontational government or the possibility of keeping the scenario pending with a caretaker government. Charges against Bassil would make it difficult for him over the formation of the next government.

However, in both cases, during this hypothetical negotiation, there will be no secondary plans in terms of cooperation with the outside world. Therefore, Lebanon will remain in a deep political and economic crisis as of now. It is evident that the Bank of Lebanon’s mandatory reserves will be invoked in the battle for a political resolution.

Besides, rescue plans may result in additional risks. One such plan is that some have started to support the likelihood of dispensing with the IMF and executing a self-rescue plan funded by a gold reserve mortgage of around 286.6 tons.

In this scenario, the data highlights some Lebanese financial groups’ concerns regarding the presence of intentions in international funds. These funds now have a high number of European bonds, and the groups plan to gather their debt by focusing on gold.

It is not entirely impossible that the skeptical silence of these financial circles is not related to the COVID-19 outbreak. Moreover, it is linked to waiting for any irrationality that the Lebanese leaf-entities may commit. Foreign laws give the world’s best central banks unusual liberty, which is partially separate from governments. As a result, they realize that their efforts today to snatch gold reserves may not be possible because of the confusion regarding its ownership. Moreover, it seems less likely because of the decisionmaker’s singularity to get rid of the reserves.

However, this immunity paper is owned by Lebanon and may collapse when the House of Representatives decides to impose Law 42 of 1986, which forbids the sale or mortgage of gold. This step would be a legal issue that opponents will use to prove that gold is owned by the political authority that has the right to sell or mortgage it and that the central bank does not have any control over it.

Therefore, this new reality may result in the collapse of the paper, and it is likely to release a statement by a U.S. court to reserve gold for the profit of creditors so as to collect their debts. The new reality implies that if political power goes in the direction of gold, they will risk losing it. It has only the use of the mandatory reserves of the country’s central bank, which sums up to $17 billion.

However, even this money would be confiscated if the bank continues its refusal to misuse the funds, and the political power interferes with forcing it to spend. In this scenario, creditors may try to confiscate the money outside of this reserve. Thus, the only thing that can prevent it from happening would be undeclared pressure on the Bank of Lebanon. This would force the officials to accept the idea of using this money to control the affairs of the individuals. Additionally, this money would be used for the betterment of the country in the period of confrontation and political and economic downfall.

It is unnecessary to recall that several countries have adopted the technique of spending all the reserves available under their hands for confrontation and waiting without a horizon. One such country is Venezuela that has ended up in imaginary inflation and extreme poverty. This has resulted in the collapse of the country’s income rate, for those who are employed, to $6 or $7 a month.

Along with this new reality, extending the useless waiting period will result in a further decline in the size of the economy. Besides, the central banking sector’s restructuring plan will become worthless, and the date of February 2021 will collapse entirely to increase bank capital by 20%. Additionally, Circular 154 — aimed at returning some amount of the money that came out of the country — will lead to a dead end.

The probable consequences of such a scenario are terrible, and the hope that was being put forward through some positive situations will be lost. Besides, the waiting period before any sign of recovery will be very long.

Pierre El Sokhn